Facilitation of a roundtable on Insurance industry regulatory developments. (Spring 2009)

1. RMA Insurance Roundtable June 5, 2009
RBC Mississauga
Facilitated by : Anthony Gagnon
Executive Consultant
jagagnon@bell.net

2.  Risk management more critical than ever
 ERM is in, «siloed» approaches out
 ERM implies management across business lines and
integrating all risk categories in a strategic view
 More regulation coming, not less, with some regulation of
systematically important shadow markets
 Risk management emphasis :
 Governance
 Liquidity
 Economic capital and procyclicality
 Product development risk and suitability
 Counterparty risk
 Reputation and moral hazard
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3.  Strong and independent risk management
will be required
 Strengthening of resiliency of critical
payment and settlement systems
 Capital will remain key for financial
institutions, expect higher minimum
requirements
 Macro-prudential (systemic risk) focus for
supervisors
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4.  Establish Financial  Implement new
Stability Board principles on executive
 Extend oversight to all compensation
systemically important  Improve and
institutions and harmonize accounting
markets standards
 Reform the credit  Improve quality and
rating agencies quantity of capital
environment
 Identify and respond to
macro-prudential risks
Learn More at : ERM Symposium April 2009, Risk and Regulation at
Financial Institutions: New Directions, Cathy Lemieux, Federal reserve of Chicago
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5.  Systematic risk
 Eliminating supervisory gaps
 Emphasizing consumer protection (product
suitability)
 International coordination
Handout available at :
http://www.ermsymposium.org/2009/pdf/handouts/2009-chicago-erm-karl.pdf
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6.  Canada is an active player in G-20 suggested reforms
 Insurancy industry regulation is under discussion at
the Superintendant of Financial Institutions (OSFI)
 In Quebec, proposed guidelines are expected to be
implemented by the end of 2011 covering :
 Governance
 Integrated risk management
 Interest rate risk mangement
 Liquidity risk
 Compliance
 Outsourcing
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7.  Establish and operate an ERM framework
 Integrate the framework with the
strategies, operations and business cullture
 Leadership and oversight should be a Board and
C-suite task
 Proper ERM requires quantification of risks over
an adequate range of potential outcomes
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8.  Risk measurement must be built on reliable
data, description of risks and their explanation
 Establish and perform an Own Risk and
Solvency Assessment (ORSA)
«An insurer should regularly perform its own risk and solvency assessment
(ORSA) to provide the board and senior management with an assessment of
the adequacy of its risk management and current, and likely future, solvency
position.
The ORSA should encompass all reasonably foreseeable and relevant
material risks including, as a minimum, underwriting, credit, market,
operational and liquidity risks. The assessment should identify the
relationship between risk management and the level and quality of financial
resources needed and available.»
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9.  I Quantification of risks and capital
 II Governance and supervisory oversight
 III Disclosure and transparency
 Risk categories: credit, underwriting, market, liquidity
and operational risk
 Principle of proportionality: sound and transparent
framework in relation to nature, size and complexity
 Board accountability for framework, including
policies, and oversight
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10.  The minimum Continuing Capital and Surplus
Requirements (MCCSR) paper is capital
focused.
 The paper nevertheless promotes :
 Regulatory framework areas: financial
requirements, governance and market conduct
 An attention to risks that cannot necessarily be
managed through financial requirements.
Reference : Federal : Canadian Vision for Life Insurer Solvency Assessment, November 2007
QC : Joint Committee (OSFI, AMF, Assuris) Framework for a New Standard Approach to setting Capital
Requirements, Draft for Comment, January 2008
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11.  Senior Supervisors Group
www.newyorkfed.org/newsevents/news/banking/2008/rp080306.html
 President’s Working Group on Financial
Markets
www.treasury.gov/press/releases/hp871.htm
 Financial Stability Forum
www.fsforum.org/publications/r_0804.pdf
 ERM Symposium Chicago April
2009, handouts
http://www.ermsymposium.org/2009/handouts.php
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12.  Canada : OSFI
http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=363
 Quebec : AMF
http://www.lautorite.qc.ca/reglementation/assurances-institutions-depot.en.html
 MCCSR Advisory Committee (MAC):
The MAC is co-chaired by a member of the Canadian Institute of Actuaries (CIA) and a
representative of the Office of the Superintendent of Financial Institutions (OSFI). Its
members are senior representatives from the Canadian Life and Health Insurance
Association (CLHIA), CIA, Assuris, the Autorité des marchés financiers (AMF), and OSFI, as
well as representatives from large and small insurers and the reinsurance industry.
Canadian vision for life insurer solvency assessment, November 2007
http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/guidelines/capital/guidelines/mac_e.pdf
Solvency Advisory Committe/AMF, Framework for a New Standard Approach to setting
Capital Requirements, Draft for Comment, January 2008
http://www.lautorite.qc.ca/userfiles/File/Consultations/solvency-committee-4.pdf
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13.  Proposed enhancements to the Basel II
framework
 Range of practices and issues in economic
capital frameworks (mars 2009)
 Amended Proposal for a DIRECTIVE OF THE
EUROPEAN PARLIAMENT AND OF THE
COUNCIL on the taking-up and pursuit of the
business of Insurance and Reinsurance
(SOLVENCY II) Brussels February 2008
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14.  Credit risk transfer – developments from 2005 to
2007, July 2008
 Credit risk transfer, March 2005
 Cross-sectoral review of group-wide
identification and management of risk
concentrations, Avril 2008
 Customer suitability in the retail sale of financial
products and services, April 2008
 Financial disclosure in the banking, insurance
and securities sectors: issues and analysis, May
2004
The Joint Forum members are: supervisors for banks (BCBS)and insurers (IAIS);
securities regulators IOSCO
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15.  High-level principles for business continuity, August
2006
 Initiatives by the BCBS, IAIS and IOSCO to combat
money laundering and the financing of terrorism, June
2003
 Operational risk transfer across financial
sectors, August 2003
 Outsourcing in Financial Services, February 2005
 Regulatory and market differences: issues and
observations, May 2006
 The management of liquidity risk in financial
groups, May 2006
 Trends in risk integration and aggregation, August
2003
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16.  Issues paper on group-wide solvency assessment
and supervision (5 mars 2009)
 Standard on enterprise risk management for
capital adequacy and solvency purposes (October
2008)
 Standard on the use of internal models for
regulatory capital purposes (October 2008)
 Standards on disclosures concerning technical
performance and risks for non-life insurers and
reinsurers (October 2004)
 Glossary of Terms (February 2007)
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17. The Canadian banking and insurance sector is dominated by a small number of
large and relatively stable players. It grew with little government intervention
until the collapse of Home Bank in the early 1920s. Ottawa then created the
Office of the Inspector General of Banks to regulate the sector with an entire
staff that could be counted on one hand. The Office of the Superintendant of
financial Institutions, known as OSFI, was created when OIGB merged with the
insurance regulator in 1987. It has since been steadily growing both its employee-
count, now standing at approximately 500, and its oversight of the industry.
OSFI continues to be more focused on the principles of sound management than
on rules. The Canadian approach is closer to the British than our southern
neighbor.
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18. There are more than 7,000 commercial banks in the United States of which 10 to
20 could be considered to dominate the market. Financial institutions are
overseen by numerous federal and state regulators. They sometimes
overlap, leaving holes. Depending on their type, size and location, U.S. financial
institutions could be subject to a number of regulators, from the Federal Reserve
Board and, through it, the Federal Reserve Banks (which preside over about 900
state banks and roughly 5,000 bank holding companies), to the Federal Deposit
Insurance Corporation (which supervises state banks that are not members of the
Federal Reserve System), to the Comptroller of the Currency and the Office of
Thrift Supervision , etc. A Canadian Bank Executive was recently quoted as saying
their U.S. operations can have as many as 17 «inspectors» at any time.
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19. With a career spanning more than thirty years, Anthony Gagnon offers value
added expert advice and contractual interim executive services in the areas of
finance, strategy, risk management and business unit structuring. From 2003 to
now, the majority of mandates have been in policy writing and framework
design and implementation of Basel II operational risk programs and initiatives:
general framework, business continuity, outsourcing, trust company fiduciary
risks, etc.
Typical mandates require acting on behalf of an Executive, the project sponsor, in
executing project requirements. Sponsoring Executives retain full ownership, are
involved on an on-going basis and expertise is transferred to the internal team by
the agreed delivery date.
Anthony also works on a sub-contract basis or as partner with reputable firms in
major projects requiring teams and multi-disciplinary resources.
Anthony is currently working with Desjardins General Insurance Group
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21. Desjardins General
Insurance Group
1.8 million policies and  4 subsidiaries: 2 individual insurance companies
premium volume of (Desjardins General Insurance and Certas Direct)
$1,429 million and 2 group insurance companies (under The
Personal banner)
Underwriting profit
for the 15th year
 Operates many call centres renowned as being
in a row among the most efficient in North America
 Client/member satisfaction:
Assets: 95% policy renewal rate
$3.1 billion  Expertise in risk and client segmentation
and rates management
Net earnings:  Some 2,000 agents, experts and client service
$126 million representatives in various client call centres in
(Data as at December 31, 2007) Québec and Ontario
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